HSBC chief warns post-Brexit fragmentation could increase costs

HSBC chief executive Noel Quinn says there is a risk of higher costs for banks and their customers if Brexit leads to a more fragmented European market.

The European Central Bank has been putting pressure on banks to move more staff and capital from London to Europe. Some bankers worry this will lead to role duplication and inefficient resource allocation.

HSBC plans to move around 1,000 investment bankers from London to its Paris office. While Quinn said he was confident the bank would not need to shift staff or assets, he added that any significant fluctuations would bring additional costs for customers.

“There is a risk of fragmentation increasing costs, that is a fact. But that’s out of my control,” he said at the Financial Times Global Banking Summit on Thursday.

Recent bank executives, lawyers and supervisors tell FT that the ECB has become increasingly forceful in requiring lenders to shift more resources to the continent to run their European businesses.

This push is partly related to the ECB’s recent decision to end sanctions on the movement of staff and capital granted to the EU during the pandemic, as well as the proposed new law. will make it harder for international banks to sell services to the bloc.

However, other temporary measures have been extended to avoid causing financial instability. Last month, the European Commission said it would extend a temporary license allowing European banks to access UK clearing facilities to avoid “the brink” when the current facility expires. in June.

“I hope the interim arrangements will become more permanent,” Quinn said. I think there’s some optimism about that, but we’ll have to wait and see.

“That’s not for me to make judgments, it’s for politicians and regulators. . . But no matter what, we got the spot. ”

Quinn, who has led HSBC since August 2019, also have to fight with the current turbulent relationship between the US and China. As one of the last truly global lenders, with the most important and profitable market in Hong Kong, it found itself caught between the two.

This and extremely low interest rates have weighed on its share price, which has fallen 30% since the start of 2020, wiping $47 billion off its market value.

Quinn said HSBC lost $6 billion in revenue due to falling interest rates.

“My focus is on driving revenue regardless of interest.”

He said he expected “slow and steady” rate hikes over the next year to strike a balance between keeping inflation in check, sustaining the economic recovery and not significantly raising the cost of payments. government debt.

“We are a substantial cash surplus organization, we have a balance sheet of $1.7 billion in customer deposits and $1.1 billion in customer loans that are currently mostly got nothing,” he said. “Higher interest rates. . . will have a significant impact on the bank. ”

HSBC said that in the UK, a 0.25 percentage point increase in interest rates alone would add $500 million in annual income.

The bank is undergoing the biggest overhaul of its global operations in its 156-year history. It plans to cut $4.5 billion in costs, cut 35,000 jobs and move $100 billion of risk-weighted assets to Asia, along with moves by several senior executives. high.

This year, it sold its loss-making consumer operations and French retail bank, and pledged to invest $6 billion to expand its Asian wealth management business.

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